ITAT held in Envogue Wood Working Pvt Ltd Vs ACIT that if the assessee had taken and repaid the loan in cash and provided the sufficient reasonable cause of doing such then penalty u/s 271D & 271E would not be imposed.

Moreover judiciary should be satisfied with the reasonable cause given by the assessee.

Facts of the case:

Assessee had taken loan & advanced loan to its whole time directors and shareholders in cash because of which the AO levied penalty u/s 271D & 271E for the violation of provisions of sec 269SS & 269T which was unsuccessfully challenged with CIT(A) .

The assessee had given the reason of doing such violation is the ignorance of law and moreover all the persons to whom loan has been repaid and from whom loan had been taken were family members.

Contention of the assessee:

Assessee was of the view that as there was urgent need of funds in the company as some of the expenses had to be incurred on urgent basis which could not be delayed so the loan had been taken from the family members who were also the whole time directors of the company and shareholders to fulfill the urgency of funds to keep the business in the continuing condition. The persons from whom loan had been taken were known to the assessee as all were family members so there would not be any difficulty in obtaining the loan as it was in very need of funds .So that was the reasonable cause of obtaining and repaying the loan in cash.

Moreover assessee was of the view that as all the supporting including return of income of those persons from whom loan had been taken had been presented before the AO so there was no question of unaccounted money. Further as sufficient reasonable cause had been given so the penalty order of the AO should be quashed.

Contention of the revenue:

Revenue was of the view that as the assessee had violated the provisions of sec 269SS and sec 269T so the penalty u/s 271D & 271E should be levied.

Held by ITAT

ITAT held that as the assessee had provided the sufficient reasonable cause for taking & repaying the loan in cash that there was urgency of funds in the company without which company would had to face loss. This seems to be bonafide so the penalty order should be quashed.